Stamps.com 2012 Annual Report Download - page 37

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Cost of
PhotoStamps revenue decreased 6% to $5.1 million in 2011 from $5.4 million in 2010. Excluding the PhotoStamps retail box breakage
cost we recognized in the second quarter of 2011, total cost of PhotoStamps revenue decreased approximately 14% from 2010 to 2011, which is
consistent with the 15% decrease in PhotoStamps revenue excluding the PhotoStamps retail box breakage revenue. The gross margin from
PhotoStamps is significantly lower than that of our other sources of revenue because we include the stated value of USPS postage as part of our
cost of PhotoStamps revenue. As a percentage of total revenue, cost of PhotoStamps revenue decreased to 5% in 2011 from 6% in 2010.
Sales and Marketing
Sales and marketing expense principally consists of spending to acquire new customers and compensation and related expenses for personnel
engaged in sales, marketing, and business development activities. Ongoing marketing programs include the following: traditional advertising,
partnerships, customer referral programs, customer re-
marketing efforts, telemarketing, direct sales, direct mail, and online advertising. Sales and
marketing expense increased 11% to $34.6 million in 2011 from $31.2 million in 2010. The increase is primarily due to increased marketing
expenditures to acquire new small business, enterprise and shipping customers, which increased 15% in 2011 compared to 2010. This increase
was partially offset by decreases in our PhotoStamps and enhanced promotion marketing expenditures, which decreased by 42% and 5%,
respectively, in 2011 compared to 2010. As a percentage of total revenue, sales and marketing expense decreased to 34% in 2011 from 36% in
2010.
Research and Development
Research and development expense principally consists of compensation for personnel involved in the development of our services, depreciation
of equipment and software and expenditures for consulting services and third party software. Research and development expense was $9.4
million in both 2011 and 2010. As a percentage of total revenue, research and development expense decreased to 9% in 2011 from 11% in 2010,
as we were able to hold our research and development costs consistent as we grew revenue.
General and Administrative
General and administrative expense principally consists of compensation and related costs for executive and administrative personnel, fees for
legal and other professional services, depreciation of equipment and software used for general corporate purposes and amortization of intangible
assets. General and administrative expense decreased 3% to $14.2 million in 2011 from $14.6 million in 2010. The decrease was primarily
attributable to a decrease in legal expenses. As a percentage of total revenue, general and administrative expense decreased to 14% in 2011 from
17% in 2010 as we were able to realize a decrease in our general and administrative costs as we grew revenue.
Legal Settlement
Legal settlements were $5.2 million in 2010. This expense was primarily due to our settlement agreement with Kara Technology Incorporated
and Mr. Salim Kara to resolve all outstanding litigation among the parties. We did not incur a similar expense in 2011.
Non
-Operating Asset Write-Offs
The non-operating asset write-
off was $634,000 in 2010. We incurred $634,000 in capitalized fixed assets related to a project to launch a new
third party billing system. During 2010, we made a decision to abandon this project before it was completed and placed in service. As a result,
we wrote-off the $634,000 fixed assets in the fourth quarter of 2010. We did not have any similar write-off in 2011.
Interest and Other Income, Net
Interest and other income, net primarily consists of interest income from cash equivalents, short-term and long-
term investments and other
income, which is currently immaterial to our financial statements. Interest and other income, net decreased 26% to approximately $562,000 in
2011 from $756,000 in 2010. The decrease, both on an absolute basis and as a percentage of total revenue, is primarily due to lower average
investment balances, as we sold certain investments and used the cash to pay a one-
time $2.00 per share special dividend in the fourth quarter of
2010 and repurchased shares of our common stock.
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